The Fed announcement today at the conclusion of the two-day FOMC
meeting will be the primary driver of the day's trading action.
Minutes of the Fed's last meeting and pronouncements by key
officials subsequently have helped build expectations that the
central bank will announce a new round of quantitative easing
program (QE3) today. This morning's tame-looking wholesale
inflation and weak jobless claims data will also be seen as
confirming that expectation.
QE3 hopes have been a key driver of the stock market gains this
summer, offsetting persistent weaker economic readings from all
over the world. The Fed itself has helped build these expectations,
by repeatedly assuring the markets that they stood ready to 'do
more' should the economy remain weak. This was the takeaway from
the Fed's last meeting and also from Bernanke's speech at Jackson
Hole. Last Friday's sub-par August jobs report further confirmed in
investors' minds that the Fed will come out with the QE3
announcement today given the upcoming elections.
In a survey of 47 economists in today's Wall Street Journal, 72%
expect the Fed to announce QE3 today. Bernanke had provided a
spirited defense of the Fed's unconventional monetary policy
measures over the last few years at his Jackson Hole speech, by
crediting the programs with economic growth and job creations. But
many respondents in today's Journal survey do not expect a fresh QE
program to have any significant impact on the economy.
I agree with those who question the relevance of more monetary
stimulus to the issues facing the U.S. economy. With interest rates
where they are already, it is hard to imagine a jump-start for
aggregate demand solely through a few basis points drop in interest
rates. But we will see how things shape up in the coming days.
are scheduled for release today at 10:00 AM EST and are expected to
increase by 0.1% after increasing by 0.1% in June.
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